Stabilizing one of the most dangerous regions in the world from the ground up
ADDIS ABABA, Ethiopia — Len Tiahlo vividly recalls a flight he took more than a decade ago that had to make an emergency landing on a dirt strip serving as a runway outside the tiny enclave of Jijiga in eastern Ethiopia.
A lone shack sat next to the runway amid the scrub; there was nowhere else to go. Tiahlo and his fellow passengers spent the night drinking Coca Cola, coffee and smoking cigarettes until the plane was able to depart.
Nowadays Tiahlo is a regular and more willing visitor to a very different and buzzing present-day Jijiga as director of London-based Horn Investment Development (HID), a British company which recently completed a trial run of the first inland trade of animal hides to Jijiga from neighbouring Somaliland.
“Animal hide startup” may not say instant wealth to Westerners raised on tales of Silicon Valley. Here, however, a simple cross-border trade of hides could mark the start of a boost to development and security in one of the poorest and most unstable regions of the world.
Ethiopia and Somalia, along with the self-declared state of Somaliland internationally recognized as an autonomous region within Somalia, lie on the infamous Horn of Africa. During the 1990s the Horn of Africa became synonymous with nightmarish uprisings and mass killings. The early and mid-2000s were dominated by piracy and hostage-taking in the waters off Somalia.
But increasingly, news is emerging of economic progress and tentative stability in the likes of Mogadishu, Somalia’s capital, and across previously perilous border regions with other countries, such as Ethiopia. HID is one of many groups now looking to invest in the region while kick-starting development efforts.
Jijiga’s infrastructure has improved since Tiahlo’s first visit, but its economy is still underpinned by traditional livestock rearing and is primarily subsistence-based, as is the case across the majority of the Horn region.
As a community interest company — a category set up by the British government in 2005 — HID is a private, for-profit enterprise but with a built-in focus on a social objective. HID says it wants to attract international investment to transform pastoral livestock raising into modern industrial farming. Trading skins is the first phase. Next would come a factory that can produce frozen meat products both for Ethiopia’s domestic market and to export around the world. Meat consumption—especially of the frozen variety—is expected to increase due to Ethiopia’s growing middle class with more disposable income and increasing ownership of refrigerators.
It’s an idea that has already received praise, as well as $160,000 from UK government’s Department for International Development due to potential strategic benefits for this oft-times troubled region. British leather manufacturer Pittards is consulting with HID on the leather aspect of the plan, and received the first trial run of 5,000 at its Ethiopian factory, while London Business School is partnering HID and developing a business prospectus that it’s hoped will attract investors.
The presence of a hide and meat factory in Jijiga could end years of erratic income for farmers in the Ogaden region surrounding the town, as well as in Somaliland. These farmers have depended on fluctuating meat demand in the Middle East for religious festivals that only total a few months each year. HID’s factory would provide demand all year round.
It could also give farmers better prices for their livestock than they are currently getting from middle men in the Somaliland cities of Hargeisa and Burao, or from Arab traders in Berbera’s port, Tiahlo said.
“This would be a revolution for the agricultural industry of the region which 10 years ago didn’t even have electricity,” Tiahlo said.
Ethiopia’s government is interested in HID’s project, too, for several reasons.
Ethiopia is home to Africa’s largest livestock population, and is Africa’s top livestock exporter. Livestock exports constitute more than 5 percent of Ethiopia’s GDP — a figure that could be increased significantly if illegal trade were eliminated. The black market currently accounts for around 75% of the country’s overall foreign livestock trade, costing legitimate traders between $180m to $360m a year, according to Ethiopia’s agriculture ministry.
Tiahlo thinks the Jijiga factory would reduce illegal trade by providing an example of the benefits of legitimate business.
There could be a security payoff, as well.
Ethiopia’s eastern Ogaden region shares a border with Somalia and Somaliland, the autonomous region that declares itself a state. The ethnically Somali Ogaden National Liberation Front (ONLF) has been fighting a long-running insurgency against the Ethiopian government, seeking more autonomy for the underdeveloped region. Improving economic situation on the ground has clear advantages.
“Regional integration is very important,” said Mebrahtu Meles, state minister for Ethiopia’s Ministry of Industry, at a mid-February meeting with HID to discuss the project.
The question is: Will these efforts be successful?
Many commentators also say there is patchy evidence of private sector development actually helping the indigent, even though, according to a leather consultant who has travelled extensively in Africa during his four decades in the industry, development and the private sector should be well matched.
“In theory it should be ideal,” said the consultant, who wished to remain anonymous due to current work commitments with an intergovernmental organization. “But it rarely works as advertised—if a project produces the anticipated results then the owners want to cash in on the project and that means the workers get peanuts.”
Furthermore, transforming pastoral farming traditions to modern industrial farming methods while being able to make money is a very tall order and an inherently fraught enterprise in a part of the world where pastoralism is the predominant mode of production, deeply entwined with ancient cultures.
Getting down to specifics, the leather consultant wishing to remain anonymous cautioned that managing to produce meat that corresponds to the international market standards can take years to achieve. Currently South Africa, Botswana and Namibia are the only African countries currently licensed to sell meat to any European country, he said, and face huge competition from Brazil, the world’s number one exporter of frozen meats.
Tiahlo counters such concerns by pointing to the expected growth in Ethiopia’s domestic meat market, which could help the factory maintain demand until the international standards are met. HID’s leaders also emphasize, in response to concerns about getting profits back to farmers, that their business model mandates that between 3% to 7% of net income—after recovery of investments, operating costs and repayment of HID costs—is distributed to the local community hosting the business. About 200 people would be employed at the planned Jijiga factory, they say.
A move towards Western investment in Africa
UK Foreign Office Minister Henry Bellingham arrives in Jijiga in the Somali region of Ethiopia in July, 2011. (Foreign & Commonwealth Office/Flickr Commons)
HID’s venture is a small one compared to others of its kind initiated in the past few years. Along with its grant to HID, the UK’s Department for International Development has promised up to $14.8 million to Novastar, an East Africa-based venture capital fund, to allow it to support more entrepreneurs and businesses in the region which provide low-cost schooling, healthcare, energy, housing and safe water.
Previously Western companies, unlike their Chinese counterparts, have remained nervous about participating in major projects in sub-Saharan Africa, said Manaye Ewunetu, managing director of London-based ME Consulting Engineers, which specialises in Africa and the Middle East.
They’ve been deterred by insufficient profits in the short term, along with high political risk due to rapidly changing governmental policies or even entire governments. Now, that appears to be changing.
Some big companies are coming and taking a bet on regions that previously would have been unimaginable for boards and directors.
Coca-Cola’s opening of a $17 million bottling plant outside the Somaliland capital, Hargeisa, represents the biggest private investment in the country to date.
Larger projects such as this and the size of capital they bring clearly have advantages, but smaller companies appear coveted by regional authorities, also, as evidenced by the Ethiopian government’s enthusiastic response to HID’s livestock plan.
Western governments are increasingly eager to encourage such initiatives, and to tie aid to business opportunities. The US-Africa Leaders Summit this August is intended to “advance the administration’s focus on trade and investment in Africa,” according to the White House. In January of 2014, British International Development Secretary Justine Greening announced that the UK would be devoting £1.8 billion to growth-boosting investments in 2015-2016. “Economic development is, without question,” Greening said, “the only way countries can leave behind enduring and chronic poverty for good.”
Source: Global Post